NBA team owner accused of insider trading

Mavericks' Cuban to contest charge

WASHINGTON 
Federal regulators yesterday charged Dallas Mavericks owner Mark Cuban with insider trading for allegedly using confidential information on a stock sale to avoid more than $750,000 in losses.

Cuban, 50, disputed the Securities and Exchange Commission's allegations and said he would contest them.

In a civil lawsuit filed in federal court in Dallas, the SEC alleged that in June 2004, Cuban was invited to get in on the coming stock offering by Mamma.com Inc. after he agreed to keep the information private.

Cuban owned 6.3 percent of Mamma.com's stock at the time and was the largest known shareholder in the search-engine company, the SEC said. The agency said Cuban knew the shares would be sold below the market price, and a few hours after receiving the information, he told his broker to sell all 600,000 shares before the public announcement of the offering.

By selling when he did, Cuban avoided losses exceeding $750,000, the SEC said in its lawsuit. On June 30, the first trading day after the announcement, Mamma.com shares opened at $11.89, down 9.3 percent from the previous day's close of $13.10.

Cuban, a multibillionaire, is a tech entrepreneur who sold Broadcast.com to Yahoo in 1999 at the height of the dot-com boom. He bought the Mavericks in 2000 and spent heavily to improve the roster.

He is the best-known figure to be accused by the SEC of illegal insider trading since its case against Martha Stewart in 2002 for allegedly using advance knowledge of negative news for a company to sell her shares and avoid $45,673 in losses. The homemaking diva paid about $195,000 and agreed not to serve as the director of a public company for five years under a 2006 settlement with the SEC.

Cuban's fury over referees' calls on the basketball court is legendary. He has been fined more than $1 million by the National Basketball Association for episodes dating to 2000 and suspended from a few games.

The SEC is seeking a court judgment against Cuban finding that he violated the antifraud provisions of the federal securities laws, an injunction against future violations, an unspecified civil penalty and restitution of the losses Cuban allegedly avoided.

“It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market,” Scott Friestad, the SEC's deputy enforcement director, said in a statement.

While the stock offering in question occurred more than four years ago, the SEC didn't learn about the specifics of the case until early 2007, agency attorneys said.

Cuban's lawyer said in a statement that the SEC's case “has no merit and is a product of gross abuse of prosecutorial discretion.”

“Mr. Cuban intends to contest the allegations and to demonstrate that the (SEC's) claims are infected by the misconduct of the staff of its enforcement division,” Ralph Ferrara wrote in a note posted on Cuban's blog.

In a twist, SEC Chairman Christopher Cox refrained from the commissioners'vote authorizing the enforcement action against Cuban. That was done in light of allegations by Cuban's attorneys that an SEC lawyer in the agency's Fort Worth, Texas, office had copied Cox on an e-mail to Cuban in which he made a personal attack against Cuban for his liberal political views.

The SEC lawyer played no role in the investigation of the case and the matter was referred for possible disciplinary action, the agency said yesterday. It said that Cox recused himself “to avoid any potential appearance” of conflict of interest.

Cuban, in his statement, said, “I am disappointed that the (SEC) chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions. The staff's process was result-oriented, facts be damned. The government's claims are false and they will be proven to be so.”

Cuban is one of the richest people in the world, according to Forbes magazine, which pegged his net worth at $2.3 billion as of March 2007. Besides the Mavericks, he owns Landmark Theaters, a large national chain dedicated to independent films, and the HDNet cable television channel.

Montreal-based Mamma.com decided in the spring of 2004 to raise capital in a so-called private placement in public equity offering, known as a PIPE, according to the SEC suit. In late June, as the PIPE moved toward closing, Mamma.com's investment bank suggested the company invite Cuban to participate.

Because PIPEs often are sold at discounts to the stock's market price, the investment bank likely suggested that Mamma.com reach out to Cuban as the largest investor to help boost the offering. A bank salesman told Cuban the shares would be sold at a discount and that the offering included other incentives for investors, the SEC said.

On June 28, Mamma.com Chief Executive Guy Faure e-mailed Cuban asking him to call him “ASAP,” the SEC said. Cuban called four minutes later and spoke to Faure for about eight minutes.

Faure, who resigned last year, began the conversation by telling Cuban he was about to give him confidential information. Cuban agreed to keep it to himself, the SEC said.

Cuban became upset and angry during the conversation, and said that he didn't like PIPEs because they dilute the value of company stock for existing shareholders, the SEC said. At the end of the call, Cuban said, “Well now I'm screwed. I can't sell.”

Mamma.com changed its name to Copernic Inc. in June 2007. Copernic officials did not return calls for comment.